Warranty Deed in Lieu of Foreclosure
(GA)

Summary

This template warranty deed in lieu of foreclosure may be used in Georgia to transfer title to real property from a defaulting borrower to a secured lender. This template contains practical guidance and drafting notes. Deeds to secure debt, also known as security deeds, are almost universally used in Georgia as the method for lenders to obtain a security interest in real property as collateral for a debt. Nonjudicial foreclosure pursuant to a power of sale clause in a security deed is the traditional foreclosure process in Georgia. A quicker and less expensive—albeit riskier—method for a lender to take title to the real property is through the negotiated process of a deed in lieu of foreclosure (DIL). DIL agreements are generally conducted when there will be no surplus funds available to the borrower. The lender and borrower first negotiate the terms of a settlement that will be memorialized in a DIL agreement. Typically, in a DIL agreement, the lender agrees to waive its right to seek a deficiency judgment in exchange for the transfer of the collateral property and, when the lender can obtain it, a cash payment to offset some of the deficiency. The lender then typically takes title in its name, or in the name of a special purpose entity affiliate to protect the lender from property-specific liability via a DIL. A disadvantage of a DIL is that, unlike a foreclosure, it does not eliminate junior liens, such as judgments, junior mortgages, or mechanic's liens. DIL's are not recommended if there are junior liens. However, if a lender is concerned about merger of title the DIL should state whether or not the DIL constitutes a satisfaction of the underlying debt. Courts and title companies do not favor DILs because they pose significant creditors' rights risks and title policies exclude coverage against fraudulent transfer claims These fraudulent transfer claims most frequently arise if the borrower files for bankruptcy protection. If a merger of title is intended then, simultaneously with recording the DIL, the lender should file a cancellation of the security deed. For a template see Cancellation of Deed to Secure Debt (GA). For an owner's affidavit for use with a transfer via DIL, see Owner's Affidavit (Deed in Lieu of Foreclosure) (GA). For further guidance on lender remedies in Georgia see Commercial Real Estate Loan Defaults and Remedies (GA), Commercial Real Estate Financing Transactions (GA), Commercial and Residential Mortgage Foreclosure (GA) and Foreclosure Resource Kit (GA). For guidance on commercial loan workouts see Workouts of Commercial Real Estate Loans. For guidance on recording deeds and other real estate related documents in Georgia see Recording Procedures (GA).